Transcript Demand Side Economics For The Pacific Liner Trades Presented by

Demand Side Economics For
The Pacific Liner Trades
Presented by
Doug Coates
Principal, Manalytics International
The Society of Naval Architects and Marine Engineers
Shippers and Consignees are Driving the
Growth of Trade in the Transpacific
• Global sourcing and global market penetration tend to be
irreversible
• Supply chain decisions and awareness have risen to the Board
level
• Supply chain variables are many, quantification is key
• Logistics solutions involve issues and opportunities such as:
– Order cycle improvement
– Inventory management including distribution center by-pass and JIT
– Modal selection based on profitability impact
– Postponement, merge-in-transit and other complex solutions
– The importance of timely information and IT visibility
Manalytics International, October 2003
2
Strong Forecast Growth in Eastbound Transpacific
Trade: CAGR 5.2% 2002-2007
• Drivers of Forecast
Eastbound Transpacific Trade
– Growth in US Real GDP
12
• 3%+ from 2004 through 2007
10
– US Dollar Exchange Rates
– US Industrial Production
• Steadily increases through forecast
period
– Industry Sourcing Patterns
• Notably China
– Ratio of Inventories to Sales
• Steadily declines through forecast
period
– US Interest Rates
• Projected to rise through early 2006
and then stabilize
Manalytics International, October 2003
8
Million TEU
• Generally strengthen through early
2004 and then weaken through 2007
6
4
2
0
1993
1997
2002
2007f
Total Eastbound Trade (US Imports)
Source: JOC PIERS and Manalytics International
3
Rapid Expansion in China Sourcing; Is It Sustainable?
• Drivers
Eastbound Transpacific Trade
By Origin Region
– Low cost labor
80%
– Improving infrastructure
70%
– Favorable fixed exchange rate
(Undervalued RMB v US dollar)
– Trade agreements - WTO
• Risks
– China political stability
– China economic stability
– RMB revaluation
– Competition (e.g. India)
– US dependency on China
– Trade barriers (e.g. Quotas to
protect US textile sector)
Manalytics International, October 2003
Share of Eastbound Transpacific
– Quality gains
60%
50%
40%
30%
20%
10%
0%
1993
China/Hong Kong
1997
2002
Other NE Asia
2007f
SE Asia
Source: JOC PIERS and Manalytics Iinternational
4
Healthy Forecast Growth in Westbound Transpacific
Trade: CAGR 5.3% 2002-2007
• Drivers of Forecast
Westbound Transpacific Trade
– Growth in Asian Real GDP
5
• 3.9% through 2007
– Global Economic Recovery
• Stimulates Asian demand for imports
of industrial inputs and capital
equipment
– Trade Agreements and WTO
• Supports Chinese demand for
agricultural products (meat, fruit, etc.)
– Currency Movements
• Potential revaluation of Chinese RMB
would stimulate exports to China
Manalytics International, October 2003
4
Million TEU
• Stronger growth in Northeast Asia
(notably China and South Korea) than
Southeast Asia
3
2
1
0
1993
1997
2002
2007f
Total Westbound Trade (US Exports)
Source: JOC PIERS
5
Transpacific Trade Imbalance Will Create Greater
Equipment Management Challenges for Shipping Lines
Transpacific Trade Imbalance
• Ratio of Eastbound to
Westbound Trade will be stable
at 2.5:1
12
10
• However, the absolute
imbalance will continue to grow
– 2002: 5.0 million
– 2007f: 6.5 million
• Challenges
– Empty container repositioning costs
– Storage of empty containers
– Vessel utilization westbound
Million TEU
– 1993: 1.5 million more TEU moving
Eastbound than Westbound
8
6
4
2
0
1993
1997
Eastbound Trade
2002
2007f
Westbound Trade
Source: JOC PIERS and Manalytics International
Manalytics International, October 2003
Transpacific Vessel Size; Where are the Limits?
• Drivers
– Trade Volume
– Economies of Scale
• Vessel Size
8,063 TEU “OOCL Long Beach”
Maiden Voyage July 2003; now deployed
in Europe-Asia trade lane
47.5 feet (14.5 meters) draft and 17
containers across
– 1980s ~ 4,000 TEU
– 1990s ~ 6,000 TEU
– Today ~ 8,000 TEU (Europe-Asia)
– Future ~ 10-12,000 TEU ?
• Risks
– Economies of Scale Diminish
– Pressure on Terminal and Inland
Infrastructure / Performance
Manalytics International, October 2003
7
Is High Speed Transpacific Ocean Service Viable?
• Drivers
The "Middle Market"
– Today service choice is restricted to
slow / cheap ocean service and fast /
expensive air service
• Potential High Speed Service
– 40-50 Knots Vessel Service Speed
120%
30
100%
25
Million MT
– Some shippers would be attracted to
fast / medium priced ocean service that
offers faster ocean transit time and
shorter total door-to-door cycle time
35
80%
20
“Middle Market”
60%
15
40%
10
– Limited Port Coverage
5
20%
– High Speed Terminal Operations
0
0%
• Risks
$1-5
$5-10 $10-30 $30-50 $50100
Value / MT ('000 $)
– Financial
– Technological
Manalytics International, October 2003
$100- $200+
200
Total Trade
Air Share
Water Share
8
Thank You
Manalytics International
A transportation and logistics consulting firm
headquartered in San Francisco
Active on projects for a range of clients including shippers,
container shipping lines, equipment suppliers, IT providers,
investment banks
Contact Details:
Doug Coates, Principal
[email protected]
Tel: 415 777 3500 Fax: 415 777 0540
www.manalytics.net
Manalytics International, October 2003